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CA Intermediate · Auditing and Ethics · Audit Report

CA Arjun is auditing Lotus Retail Ltd, an unlisted company. Under the Companies Act, 2013 and SA 700 (Revised), which of the following must the auditor's report state regarding the company's internal financial controls?

The report must state whether the company has adequate internal financial controls with reference to financial statements and whether they operate effectively, as required by section 143(3)(i), unless an exemption applies. The auditor does not guarantee absence of fraud, and designing controls remains management's responsibility.

  1. AWhether the company has adequate internal financial controls with reference to financial statements in place and their operating effectiveness, as per section 143(3)(i), subject to any exemption availableCorrect
  2. BOnly that management has designed internal controls, without any comment on operating effectiveness
  3. CThat the auditor guarantees there are no frauds in the company
  4. DThat internal controls are the sole responsibility of the auditor

Explanation

Section 143(3)(i) requires the auditor's report to state whether the company has adequate internal financial controls with reference to financial statements and whether such controls are operating effectively. Certain companies, such as eligible small private companies, may be exempt by notification. The other options misstate the auditor's duty, since controls are management's responsibility and the auditor does not guarantee absence of fraud.

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